The dos and don’ts of Business Asset Disposal Relief (BADR) on a share sale

June 3, 2024

The dos and don’ts of Business Asset Disposal Relief (BADR) on a share sale

For many entrepreneurs, a share sale is a culmination of many years of hard work and perseverance, and they will want to ensure that as much of the reward for this as possible ends up in their hands (i.e. that the tax bill on disposal of the business is kept to a minimum).

Therefore, it’s vital for those selling shares in their business to consider whether Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, will be available.

BADR can reduce a seller’s capital gains tax rate to 10% (down from the usual rate of 20%) in respect of the first £1 million of their lifetime qualifying capital gains – offering potential tax savings of up to £100,000. As such, it’s important to know if and how it can be utilised, and how to avoid any potential pitfalls.

Who can benefit from BADR?

BADR may be available on the disposal of shares (or securities) of a trading company (or the holding company of a trading group) if the seller has, for the two years leading up to the disposal:

  1. been an officer or employee of the company (or another company within the trading group)[*]; AND
  2. held 5% of the ordinary share capital of the company conferring at least 5% of the voting rights in the company; AND
  3. been beneficially entitled to at least:

    a) 5% of (i) the profits available for distribution to equity holders of the company and (ii) the assets available for distribution to equity holders on a winding up of the company; OR

    b) 5% of the proceeds of sale, in the event of a disposal of the whole of the ordinary share capital of the company.


Points 2 and 3 together are known as “the 5% tests” and do not apply if the shares being sold were acquired after 5 April 2013 under an EMI option. In such cases, the EMI option must have been granted at least two years prior to the date of disposal of the shares. If that is the case, there is no minimum shareholding, nor any minimum holding period in respect of the shares themselves.

This article focuses primarily on the applicability of BADR on a share sale but BADR may also be available in connection with the disposal of the whole or part of a business carried on either by a sole trader or in partnership.

How can I benefit from BADR?

Given that the conditions detailed above must be satisfied for the entire two-year period prior to disposal of the business, if you are intending to sell your business at any point in the next few years, we recommend instructing an adviser to review your entitlement for BADR relief and planning for BADR compliance sooner rather than later.

Even once a structure is put in place which is BADR-compliant, it is important to bear these conditions in mind at all times until the business has been sold, to ensure this valuable relief is not lost.

BADR will not apply automatically upon a sale, even if a seller meets the required conditions. Instead, it must be claimed on an individual’s tax return on or before the first anniversary of the 31 January following the tax year in which the share disposal occurs. So, for a share disposal in the tax year 2024-2025 (ending on 5 April 2025) a claim must be made by 31 January 2027.

Mistakes to avoid

Failure to comply with the conditions outlined above throughout the two-year period leading up to payment of sale proceeds can lead to loss of the relief.

Common pitfalls include but are not limited to:

  • Issuing new shares on a fundraising which dilute existing shareholders such that they no longer satisfy the 5% tests. In such a case, it may be that elections can be made to claim BADR up to the date of dilution, but it would of course be preferable to ensure that BADR applies up to and including the point of sale of the business instead.
  • Granting share options which may be exercised in advance of a share sale without considering their impact on existing shareholders’ ability to satisfy the 5% tests.
  • Not realising how differential share rights can affect the availability of the relief – such as other investors having a preferential return on a sale of the company or shares carrying rights on a sale which vary over time.
  • Not considering how BADR will apply in the context of more complex consideration structures (e.g. where shares are exchanged for other shares or loan notes or there are deferred / contingent consideration arrangements such as earn-outs), as the timing of relevant tax charges may be delayed and the BADR conditions may no longer be satisfied at such later time.
    If appropriate, a structure should be implemented such that the individual can continue to benefit from BADR. Otherwise, a decision may need to be made as to whether to trigger a “dry” (i.e. when funds are not received) upfront tax charge which benefits from BADR, or to delay crystallising any tax liability but lose the benefit of BADR with respect to any delayed tax charge.
  • Failing to claim BADR by the relevant deadline (as outlined above).


Get in touch

Given the value of this relief and the potential pitfalls which can prevent its application, it is key to work with advisers who understand the BADR rules, both well in advance of, and during, the sale process.

Fox Williams is a full-service commercial law firm, advising on matters such as corporate transactions, restructurings, tax, employment, IP and more, and can provide advice on BADR in the context of, or in preparation for, a share sale in addition to other legal aspects of the sale. If you would like more information, please contact Emma Bailey, Head of Tax at Fox Williams ( or Stephanie Tsang, Corporate Senior Associate at Fox Williams (

[*][*] In this context, (i) there is no minimum working time requirement for employees or officers; and (ii) non-executive directors and company secretaries, as well as executive directors, count as officers.

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